SWIMMING UPSTREAM

No doubt today the media--at least the financial media--is awash in stories about the oil sanctions against Iran being lifted over this past weekend.

The fear is a further fall in oil prices from what has already been a bigger slaughter than many so-called experts thought. Iranian oil is expected to reach as much as 500,000 barrels a day, something this already over-supplied market clearly doesn't need if prices are not to fall further.

But it just might be time for one for one of those, "Not so fast!" insertions. A story three days ago in the UK Daily Telegraph suggested a ray of hope. Saudi Arabia is already suffering mightily from these cheap prices and they're not alone as the strong dollar has led to further pain beyond just cheap prices.

The first signs of a thaw are emerging for the battered oil market after Russia signalled a sharp fall in exports this year, a move that may offset the long-feared surge of supply from Iran.

The oil-pipeline monopoly Transneft said Russian companies are likely to cut crude shipments by 6.4pc over the course of 2016, based on applications submitted so far by Lukoil, Rosneft, Gazprom and other producers. 

This amounts to a drop of 460,000 barrels a day (b/d), enough to eliminate a third of the excess supply flooding the world and potentially mark the bottom of the market. Russia is the world’s biggest producer of oil, and has been exporting 7.3m b/d over recent months.

The big question as the article points out would such a move be market-driven or purely politics.
When you're dealing with the Russians it's anyone's guess. Just last month OPEC put out a statement that it alone was too small to act alone, a plea many believe aimed at Russia,the world's largest producer of oil, that brokering a deal might be possible.

Remember, the Saudis are unable to protect themselves. That's why the U.S. for years has been their essential big brother, but recent events have strained those relations. When you're looking around for survival at some point you'll take what's available. Either Russia or China, take your pick, are big enough to protect them.

There's is another factor here in our view that many don't want to own in this election year. U.S. foreign policy has been pathetic for years and this administration has matched it colleagues at the Fed with its own ZIRP policy. Yet one of the leading candidates for the White House has been an intimate part of that policy. It might date us, but there's an old saying: "Go Figure!"

Meanwhile, we think there will be some big surprises this year that in the end will bode well for those brave enough to test their upstream swimming skills.

telegraph.co.uk/finance/economics/12100609/Glimmers-of-hope-for-oil-as-Russia-poised-to-slash-output